Marks & Spencer’s house broker has cut its forecasts for the company’s annual profits, increasing fears that the 130-year-old retailer is to post disappointing Christmas sales numbers.

Shares in M&S dropped by almost 3pc at one stage on Monday as investors braced themselves for another drop in Christmas clothing sales.

Analyst at Citi, the broker for M&S alongside Morgan Stanley, cut £10m from its forecasts for M&S’s annual pre-tax profits because of concerns that clothing sales have fallen again and the retailer’s margins had been dragged down by discounting on the high street before Christmas.

Citi has forecast that M&S’s like-for-like general merchandise sales, which includes clothing, fell by 0.5pc in the company’s third quarter to December 28.

This would mean M&S’s clothing sales falling for the third Christmas in a row, despite chief executive Marc Bolland leading a revamp of its range.

However, Citi also cut forecasts for M&S’s food business from like-for-like growth of 3pc to growth of 2pc, which it blamed on “modestly weaker” industry data. This led to its forecast for 2014 pre-tax profits falling 1.5pc to £630m.

Brenda Kelly, chief market strategist at broker IG, said: “The struggling fashion division of M&S has been through setback after setback, in part due to an inability to decide upon and target the right demographic.

“More than one outsider has stated that its latest ranges of clothes has failed to capture the imagination of consumers with small disposable incomes."

Despite the cut to its forecasts, Richard Edwards, analyst at Citi, said strong growth prospects for the UK economy and M&S’s attempts to revamp its clothing range mean the prospect of profits recovering in 2015 and 2016 has “markedly improved”.